Should I pay off my home loan with my super lump sum?
It might be tempting, but it may not be the best option for everyone. For instance, you may be able to remove or considerably reduce your home loan debt but depending on how you choose to go about doing this, it could impact the overall amount of money you have left to fund your retirement. Likewise, going into retirement with debt might not be ideal.
It’s important to think about this carefully, particularly as we’re living longer, with many Australians looking at a retirement of 30 years or more.
Can I get my super early?
Yes, you can access your super before your preservation age, but only in certain circumstances including:
- Compassionate grounds
- Terminal medical condition
- Permanent incapacity
- Severe financial hardship
What money will I live on when I stop work?
If you are leaning towards paying off your home loan with your super lump sum or other large debts, you need to think about what you will live on if you have no super left. Do you have other sources of income? You may be eligible for government entitlements, such as the Age Pension, but according to The Association of Superannuation Funds of Australia – alone, that’s unlikely to be enough. Our Retirement Needs Calculator can help you find out how much you might need to retire on, based on the retirement lifestyle you desire, so you can make a more informed decision.
What are the tax implications around withdrawing super?
When it comes to taking super as a lump sum, you also need to think about the tax implications and whether you might need help in terms of how you invest your super savings. For instance, you may be looking to pay off your home loan right away or you might be thinking about investing your savings outside of super and using the earnings to pay off your loan gradually. It’s important to bear in mind, if you’re under age 60, you might have to pay tax on the lump sum. And, if you invest your money outside super in your own name, you may be taxed on the interest or possibly the capital gain you make. There’s a lot to weigh up. Taking super as a lump sum can give you flexibility and control, but so can moving your super into a tax-effective allocated pension, which will provide you with a regular income stream in retirement and the ability to still withdraw lump sums.
If you still have some years ahead of you before you retire, there are a number of little things you can do today to pay off your home loan sooner:
- Understand your home loan – know what you owe and what you’re paying.
- Consider rolling your debts into one – multiple debts can mean multiple fees and interest charges, and consolidating your debts could minimise what you pay
- Look at making fortnightly repayments – this small change could make a big difference to your loan as you’ll make one extra payment a year compared with if you make monthly repayments
- Use an offset account – this is a savings account linked to your home loan. The amount you have in here is reduced from the principal amount you owe to calculate interest due on the loan
- Make additional repayments – if you get a pay rise or have more money on hand, use it to top up your home loan.
- Take advantage of one-off payments – if you receive a tax return, bonus, dividends or an inheritance, you could use this to make a substantial dent in your home loan
- Switch to a home loan with a lower interest rate – this could significantly reduce the amount you’re paying but always check fees, features and conditions
- Downsize to a less expensive property – you could use the profit on the sale of your current home to pay off your loan and buy a new, less-expensive property.
Everyone’s circumstances are different, chat to our team of lending advisers today for an expert opinion.
